Black Coffee: A Lesson In Creative Accounting

It’s time to sit back, relax and enjoy a little joe …

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.

I hope everybody had a wonderful week. And with that, let’s get right to this week’s commentary, shall we?

Ponzi and all of his successors tap into a fundamental part of human nature. One part of our brain tells us this is too good to be true. The other side tells us this is too good to miss. The key to any con is getting a mark to tip to the too-good-to-miss side.

– Mitchell Zuckoff

Credits and Debits

Debit: Did you see this? After losing $6 billion during the 2023 fiscal year, the US Post Office (USPO) increased its rates to stop the bleeding. The result: This year the USPO lost more than $9 billion. Heh. Ladies and gentlemen, any private sector company that was run this poorly would be out of business by now. Perhaps its time for the incoming Department of Government Efficiency – yes, it’s an oxymoron – to make the USPO its first victim. Never mind the USPO’s countless victims …

Credit: Elsewhere, bitcoin (BTC) is pushing $100,000; all while the powers-that-be are openly admitting that the cryptocurrency is being used to stimulate purchases of US Treasuries (USTs) – and refinance US debt by exporting inflation around the world – via the dubious BTC purchasing-facilitator known as “tether” (USDT). Macro analyst Rafi Farber calls this “a monetary Mobius Strip from Hell (where) USDT is backed by USTs, which back the US dollar (USD), which is what you redeem USDT for, which is used to buy BTC, which is backed by USDT, which is backed by USTs.” In other words: it’s a scam. Just don’t tell that to the Church of Bitcoin congregation.

Whatever bitcoin is, it isn’t a safe haven from a fiat monetary system failure – so … caveat emptor. (h/t: athena-alpha.com)

Credit: Oh … and Mr. Faber wasn’t finished, observing that this new paradigm “is a spiral of monetary nothingness.” Ironically, this also means BTC buyers are prolonging the debt-based monetary system’s finite lifetime just a wee bit longer – unlike physical precious metals buyers who speed up the demise of the monetary scam by draining currency from it. As a result, Faber points out the swindlers who are benefitting from this scheme don’t care how high the BTC price actually climbs. It’s also why those controlling the system do have a vested interested in keeping a lid on the USD price of gold and silver – a fact that’s as indisputable as this:

Debit: On a related note, the relentless price inflation that most Americans have been struggling with over the past four years appears to be on the verge of making another run higher. Although if you ask some people, the inflation genie is already out of the bottle again and running amok:

Debit: Needless to say, as long as prices continue to rise faster than real (inflation-adjusted) wages, living standards will continue falling. With that in mind, it’s not surprising that the average American household currently has about $8871 in credit card debt, based on the most recent US credit card debt and household data. In total, Americans have $1.2 trillion in credit card debt – that’s 53% higher than it was in 2020. At the same time, the total percentage of credit card accounts that are at least 90 days delinquent is at its highest point in 13 years. But for now, the financial world continues to hum along, seemingly without a care in the world.

Debit: But wait, it’s not just credit cards. US household debt of all kinds is currently a record $17.9 trillion. That includes a record $12.6 trillion in mortgages, $1.6 trillion in auto loans (another record), and $1.6 trillion in student loans. Ouch. Clearly, Americans are addicted to credit. In fact, the Kobiessi Letter reported this week that, “Total household debt is up 56% over the last 10 years. Meanwhile, delinquency rates on credit cards and auto loans are now at 2008 levels.” As for their conclusion? Not surprisingly, it’s this: “Consumers are ‘fighting’ inflation with debt.” It’s a dangerous game, to be sure. So, as they say in England, mind the gap:

Credit: Speaking of debt problems, the esteemed macroeconomist Daniel Oliver pointed out last week that, America currently has an astonishing total debt-to-GDP ratio of 365%. As a result, he warned that “the US and, indeed, the world now reside in the largest credit bubble man has ever constructed.” That’s quite a feat, considering all the other monetary bubbles that have been born – and popped – throughout human history. As for fixing the problem, Mr. Oliver explains that those “credit bubbles resolve in only two ways: widespread default or debasement – but often both.” Well … isn’t that comforting?

Debit: Unfortunately, the Fed is now hopelessly stuck in a debt trap of its own making. As Mr. Oliver notes, “If Trump convinces Powell to continue lowering rates, the US dollar (USD) will get hit in international markets. If Powell raises rates or even keeps them steady, then interest payments on the federal debt will swallow the rest of the budget.” Put another way: The monetary games are all but over and the Fed – along with America’s artificially-inflated high living standard are going to be the biggest losers. If only these guys could turn things around …

Credit: Meanwhile, James Howard Kunstler had his own take on America’s balance sheet this week, calling it “a catastrophe” and pointing out that “we are functionally bankrupt.” He also warned that “Something is underway that is too big to stop and it will express itself as ruinous inflation and economic depression in some wicked combo of the two. It will surely lead to epic rearrangements in everyday life.” Well … the interest payments on the debt are certainly speeding up the process. At least for now …

Credit: By the way, Mr. Oliver made one more critical observation last week, noting that an “economic crisis (is) nothing more than the balancing of balance sheets. Under a gold standard, the crisis lowers nominal prices until they rebalance with gold prices. In a fiat currency regime, the price of gold must rise to match nominal prices. Either way, those holding gold when the crisis comes see large increases in their purchasing power.” True. As for those who aren’t holding the yellow metal … it will be back to the starting line for many of them – or, more to the point, their life savings.

Debit: Keep in mind that, in 1980, America’s gold hoard backed 92% of the Fed’s liabilities; today, that same cache of gold backs just 9.4% of those same liabilities. Well … assuming it’s all there. If not – and the odds are even, at best, that most of the yellow metal isn’t there – then the gold price is going to have to rise even higher.

(h/t: @RealBasedBrit)

By the Numbers

A recent survey was conducted to understand how young people are managing debt. The report discovered that Gen Z needs better financial education and budgeting skills. Here are some of the main takeaways:

63% The share of Gen Zers who have credit cards.

50% The percentage of Gen Z credit card holders who carry credit card debt.

1 The rank of “missed credit card payments” among reasons why Gen Zers say they are mismanaging their finances.

15% The share of Gen Zers whose parents help pay some of their credit card debt.

20% The percentage of Gen Zers who admit that they don’t know their credit score.

30% The share of Gen Z credit card holders who have less than $100 in savings.

Source: CreditCards

The Question of the Week

Last Week’s Poll Results

Which of these states have you been to?

• Maine 34%
• Hawaii 30%
• Alaska 20%
• None of them! 16%

More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that nearly 1 in 3 people have been to Hawaii and/or Maine, while more people have been to Alaska than those who haven’t been to either Hawaii, Alaska or Maine. To be honest, I was expecting Hawaii to come out on top of this survey – and it did have the early lead – but as the votes continued to come in, it was eventually barely beaten out by America’s Vacationland.

If you have a question you’d like to see featured here, please send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.

Useless News: Grim Times

Despite government claims to the contrary, news continues to pour in regarding local business failures all across America. For example:

• A bra company has gone bust
• Local dog kennels called in the retrievers
• Roto-Rooter has gone down the drain
• Florists have pruned back business
• A food blender manufacturer was liquidated
• Strip clubs have gone tits up
• A submarine inspection company has gone under
• The paper company supplying origami enthusiasts has folded
• Many excavation companies may never dig out, and …
• Several drilling companies have warned they’ll never get out of the hole

Meanwhile, this week a financially despondent vendor was found dead in his ice cream van covered with nuts and strawberry sauce; police said he had topped himself.

(h/t: Agau)

Buy Me a Coffee? Thank You So Much!

For the best reading experience, I present all of my fresh Black Coffee posts without ads. If you enjoyed this week’s column, buy me a coffee! (Dunkin’ Donuts; not Starbucks.) Thank you so much!

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More Useless News

Here are the top five articles viewed by my 49,412 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. 10 More Old Wives’ Tales Masquerading as Rules of Thumb
2. What Credit Karma Won’t Tell You About Their “Free” Credit Score Offer
3. The 5 Major Money Personalities: Which One Do You Have?
4. Your Personal Finance Voter Guide
5. Business Success Secrets from 5 Financial Advisors

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Letters, I Get Letters

Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach me at: Len@LenPenzo.com

P. Ouellette left this comment on my article explaining why waterbeds are for suckers:

Not to jinx us but we’ve had no leaks in 20 years. Although he did jump on it one time too many and the bed let go, but the bladder stayed strong. We got a couple of screws in to hold the bed together. We still laugh at that one.

Heh. It’s really tempting, but I’m just not going to go there.

If you enjoyed this, please forward it to your friends and family. 😊

I’m Len Penzo and I approved this message.

Photo Credit: public domain